What are the main concerns among your clients / occupiers following the crisis? What are occupiers looking for? What new trends are you seeing?
"With the vast majority of the UK population currently working from home, the first question both landlords and occupiers are asking is when will cities formally reopen, allowing the workforce to return to some semblance of normality. While there are a number of socio-behavioural predictions around what we can expect the new normal to look like, from our research and direct conversations with both landlords and occupiers, we are seeing a shift in priorities and requirements depending on individual business drivers.
Although not every business is returning to the office immediately, the majority of occupiers we are in contact with are planning for part of their workforce to return to the office over the summer months.
Particular industries are driving this return including hedge funds and traders who will be expected to work from their normal offices to ease issues over industry regulations. Media Tech firms who require huge internet bandwidth are also looking to return sooner rather than later, as are those in creative industries which often value group collaboration to inspire and create new ideas.
The concern for landlords, beyond short term rent collection issues, is that demand for London offices could reduce with more employees working from home at least part of the time. Should an influx of tenant sublet space (grey space) also reach the market, this will put added pressure on rental growth in the short-medium term. So far, we have not seen vast quantities of grey space reach the market and based on a West End vacancy rate of 3.6%, the market still suffers from a shortage of stock. This trend could be compounded even further in the medium-long term as some developers put redevelopments temporarily on hold. Based on past events, this will likely lead to competition among occupiers for best in class space and a further increase in large prelet activity once we are beyond the immediate impacts of COVID-19.
What types of building do client want us to support? We would like to know here if the crisis did change the priority for clients ?
Traditional locational requirements for occupiers such as public transport connections and local bars/restaurants are still important for occupiers, despite the obvious problems that COVID-19 presents, but we are seeing bicycle / EV charging points and wellness facilities rising even further up the occupier priority list. Sustainability credentials were important pre-Covid already, but new developments will be targeting Net Zero and incorporating alternative construction methods such as cross laminated timber (CLT) and are likely to offer cleaner mixed-mode ventilation systems with enhanced air filtration.
Occupiers will be more selective when relocating and may favour lower rise buildings which limit bottleneck issues with lifts. Fundamentally, we usually see a ‘flight to quality’ in challenging markets, whereby the high-quality buildings still let well and secondary buildings lag behind. We are currently advising a number of landlord clients regarding improving building specifications now to ensure we let their buildings ahead of the competition.
How do your service offer or products respond to the new challenges you have described?
With the likely increase in occupier demand for lease flexibility and landlord-fitted ‘CAT A+’ space, the BNP Paribas Real Estate team has developed a new service offering to streamline occupier relocations and remove traditional barriers to entry such as tenant fit outs. For many of our landlord clients, this offers a win-win solution of reducing void costs, plus increasing headline rents / capital values. Please get in touch if you would like to know more.